What Makes Us Tick

Wealth Management is an ongoing process that involves multiple disciplines. Specialized knowledge and experience go a long way in capturing the benefits of these varied disciplines. If you do not feel comfortably competent with some of these specializations, you may wish to retain qualified professionals for assistance. Cairns Wealth Management identifies the following elements of the wealth management process:

Risk Management: What potential risks can be reasonably identified and how can you be prepared for protecting your wealth should they materialize? These risks might include health, property, job/business, legal liability, etc.

Asset Management: Are your assets structured and positioned in ways that effectively support the pursuit of your goals given both the current and anticipated economic environment?

Tax Management: Taxes can be a significant drain on your hard-earned wealth. Are appropriate processes and entities in place to assist in the tax-efficient pursuit of your goals?

Credit Management: Credit is a tool. It is neither inherently good nor bad. What matters is why you are using it and how it is structured. Terms, rates, payment schedules, and impact on cash flow are some credit related issues to review on a regular basis

Income Planning: Wealth accumulation is one thing. Structuring that accumulated wealth for efficient distribution as income is another, especially in a changing macroeconomic environment. Maintaining the purchasing power of your income is a major consideration.

Legacy Planning: How do you want to see your wealth passed on? Who would you like to see benefit from it? How would you like them to have access to it? Are there charitable causes you would like to benefit? Would you like to see any of this happen during your lifetime? These are some of the important questions to consider in creating your legacy plan.

Specific goals answer the 6 Ws - Who, What, Where, When, Which, and Why. The "Which" may be a new W for some. In the context of specific goals, it asks Which requirements or constraints may become obstacles in pursuit of the goal.
Measurable goals are defined with precise times, amounts, or other units. They answer How questions, such as How Much? How Many? How Fast?
Attainable goals stretch your limits. They are attainable but challenging. Think of the quote, "Aim for the moon, even if you miss, you'll land in the stars!"
Relevant goals align with your broader values and objectives. They are the opposite of haphazard or scattered goals.
Time-bound goals have specific deadlines.

The SMART framework can apply to goals in all areas of your life, including professional, financial, personal health, relationships, leisure, personal growth, and spirituality. To further enhance the likelihood of success, think more of the process required than the outcome desired. You have more control over the process.

The 30-day Treasury Bill yield is considered the risk-free rate of return. There is no risk that you will not be repaid. If the Treasury does not have dollars to repay you, they will print them. However, when federal taxation and inflation are subtracted from the yield, your purchasing power has not changed. You have received a real yield of close to 0%. To receive a higher yield generally requires investing in riskier ventures. So, to say, "I don't want to take any risk" is synonymous with, "I don't want to make any money".

A famous quote states, “There are decades where nothing happens, and there are weeks where decades seem to happen”. This quote can be applied to both macroeconomics and geopolitics. Since the collapse of the Soviet Union the macroeconomic landscape had few bumps in it. Over time, it became a less obvious consideration for investment decisions. Geopolitical risks were a bit higher in that timeframe, but not meaningfully so. However, since the outbreak of COVID-19, time seems to have accelerated greatly, and both macroeconomics and geopolitics matter again.

This principle refers to risks beyond investment markets. The world is rapidly changing and tactics criminals use for attacking your wealth are evolving too. Instances of cybersecurity breaches such as identity theft, ransomware, and impersonation are rapidly rising. There is also a higher threat of litigation as your wealth grows. Do any of these issues apply to you? If so, what is your plan to protect you and your family?

This may require the creation of separate pools of capital for different goals. For instance, if you are investing for the education of a young child you may wish to accept a greater degree of risk in the early years of that program. Whereas if you are at the same time providing income for your retirement you may wish to employ a very different strategy for that pool of capital. Whatever the case happens to be for you, the investment portfolio fueling your plan should be customized to your SMART goals.

There will be bumps in the road during the journey towards your goals. Sometimes these bumps initially feel catastrophic, especially when amplified by the nonstop noise of media. But even a major market correction will likely have minimal impact on the success of a well-structured long-term plan. These types of bumps are built into the assumptions of the plan. Regular reviews can help create peace of mind knowing you are still on track for your goals.

Rebalancing to your target allocations periodically is a methodical way of selling high and buying low.

Refusing to take a capital gain can lead to over-concentrations in a position that creates greater risk than rebalancing and paying the tax. Huge profits in the internet boom of the late 90s were subsequently lost by some investors because they couldn't bring themselves to pay a large capital gains tax. Was the complete loss of the gain worth not paying the tax?

Wealth Management requires a high degree of competence in multiple disciplines. A tactic that makes sense in the context of one specific discipline may create a sub-optimal outcome in the light of another. To enhance the likelihood of successfully achieving the SMART goals of your wealth management plan, it helps to have the different professionals involved in your situation talking with each other periodically.